AL #030: The Rise of Permissioned Protocols
The Empire Strikes Back
Luckily we shook off the permissioned blockchains idea a while ago.
But permissioned protocols never left.
In fact, the thoughtful use of permissions seems to be steadily growing in acceptance and impact through a new wave of protocols.
So can protocol designers introduce permissions without jeopardizing the “crypto ethos”?
I think so.
In this article, I’ll go through three viable classes of permissioned protocols I'm seeing in the wild:
Bootstrapping protocols that aim to be permissionless in the long run but are starting permissioned
Private protocols, permissioned by design as they are intended to be used only by their owners
Protocols using permissions for regulatory compliance
Bootstrapping permissionless
One common use case for permissions is a protocol that intends to be permissionless in the long run but needs to bootstrap an actor set or stress test a mechanism.
For example, the Aera protocol vault factory could foreseeably be permissionless in the future but is starting out with individual treasury vaults given the tailored nature of each deployment.
Another example are different reputation systems ranging from oracles, keepers and solvers where it's much easier to reason about economic security properties in a permissioned paradigm.
Private smart contracts
This is an interesting category because while easy to describe, it’s harder to analyze.
By definition entities that deploy contracts for their own purposes don't tend to advertise them.
The most popular example is multisig contracts, but there are other examples:
Vesting contracts. Contracts agreeing on a token distribution schedule between two entities/individuals
“Smart contracts”. A broader version of the above. This refers to a situation where several entities elect to use a contract to complete a financial transaction or enter into a financial agreement. In some cases going onchain can mitigate both legal and operational costs as logic is enforced in code
Routing/custody contracts. A more sophisticated version of the simple multisig, these contracts offer execution support and protections for searchers and market makers. They can often be highly optimized, using assembly code. Dialectic is a good example:
My intuition is that this could be one of the fastest growing categories over the next 5 years as smart contract infrastructure and development practices have finally reached a stage where the cost of bespoke development is starting to be viable.
Regulatory compliance
A third category are protocols that seek to be permissioned in order to comply with regulatory requirements.
The Wildcat protocol uses several “web2” type safeguards like a Typeform survey and even commercial contracts to protect their regulatory position.
As a side node, Wildcat protocol is also a “private” protocol in some sense because borrowers can curate their lenders once whitelisted by the protocol overall.
Protocols like this will also use tools like the Chainalysis sanctions oracle, which helps screen against blacklisted addresses.
With more regulatory clarity in the space, we will hopefully see more tools and protocols taking advantage of those tools.